Apple TV: The Little Hobby That Wouldn't Die

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Image: Flickr, Rob Boudon

By Seth Fiegerman2014-04-24 19:02:37 UTC

After Steve Jobs unveiled updates to the entire iPod line and revealed that movies would soon be sold in the iTunes store, he made one final product announcement.

"This next thing is a little unusual for us," Jobs began during an Apple event in June 2006. "It's a sneak peak of a product that will be announced in the first calendar quarter of 2007. We usually keep things pretty corralled until we are ready to ship them, but in this case I think it completes the story."

That story, as Jobs told it, was about building a more complete ecosystem, which would let consumers access their entertainment content across what were then the three major screens: the computer, portable music player and television. In order to bring in the biggest of those screens, Apple planned to release a set-top box, referred to in the demonstration as iTV.

See also: At $1 Billion in Sales, Apple TV is a Rapidly Growing Drop in the Bucket

"We think that iTV is going to be pretty popular," Jobs said at the end of the presentation. When the device officially came out in early 2007, Jobs sounded even more bullish in an interview. "We hope the iPhone is the third leg on our chair, and maybe one day Apple TV will be the fourth leg."

The iPhone didn't just become the "third leg" for Apple — it became the company's single largest product line by revenue. Apple TV, on the other hand, wasn't quite so successful.

Steve Jobs explains the thinking behind Apple TV during a presentation in June, 2006.

Video: YouTube, EverySteveJobsVideo

In 2008, the year after Apple TV was released, Jobs stood in front of an audience and all but admitted that the product had been ill conceived:

All of us have tried. We have Microsoft, Amazon, Tivo, Vudu, Netflix, Blockbuster. We've all tried to figure out how to get movies over the Internet and onto a widescreen TV. And you know what? We've all missed. No one has succeeded yet. We tried with Apple TV. Apple TV was designed to be an accessory for iTunes and your computer. That's not what people wanted.

Jobs went on to unveil a newly rethought Apple TV ("Apple TV Take Two," he called it at the time) that focused more on being a platform for movies and did not require a computer to use. But by that point, he had already taken to referring to Apple TV as a "hobby" — seemingly a far cry from being the fourth leg of the company.

"Jobs looked at this as a potential growth product, but it was one of the first ones where he wasn't absolutely sure," says Tim Bajarin, a longtime Apple analyst with Creative Strategies. "Whereas I think with the iPod, iPad and iPhone, from the beginning he started working on it, he knew he had a hit."

Even after the update in 2008, Apple TV failed to catch on, at least when compared with other Apple products. It didn't top 1 million units sold until the final week of 2010. The iPhone, on the other hand, sold more than 16 million units just in that same quarter.

While Apple's team referred to the product as a "hobby," some in the media started to use a different word: "neglected." Apple focused more attention on another new product, the iPad, which quickly became another leg on the company's metaphorical chair. Apple TV was demoted from its potential as a fourth leg of the company.

"Now, it’s not a fifth leg of the stool," Tim Cook, Jobs' successor as CEO at Apple, said of Apple TV at a conference in 2012. Yet, the company refused to give up on it. “We’re not a hobby kind of company, as you know ... but we’ve stuck with Apple TV."

Momentum accrued little by little. In 2011, Apple sold just under 3 million Apple TV units, or nearly three times the amount it had sold throughout the previous three years. By May, 2013 Apple had sold 13 million Apple TV units in total.

"Even though it didn't start out with a clear roadmap, it gained momentum, picked up a following [that] gave Apple a lot of feedback for them to fine-tune it," Bajarin says.

On an earnings call Wednesday, Apple announced that it has sold about 20 million Apple TV devices. What's more, the device generated more than $1 billion in sales for Apple in 2013. That's still a pretty short leg for an Apple chair, but as Cook finally admitted, it's no longer appropriate to describe Apple TV as a hobby.

"It didn’t feel right to me to refer to something that’s over $1 billion as a hobby," Cook said on the earnings call this week. "Also from an investment point of view, we continue to make the product better and better. And so it doesn’t feel right from that point of view either."

More than seven years after Steve Jobs first teased the possibility that Apple TV could become a key product category for the company, it may finally be ready to live up to the hype. Apple TV is already a billion-dollar business and the company is rumored to be working on a new version and looking to invest in content deals.

"I'm convinced that they now understand that the product can evolve even more dramatically going into the future," Bajarin says. "This is a central new category for them. I do believe the investment is only going to accelerate going forward."

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Topics: apple, Apple TV, Business, Gadgets, Media